Entrepreneur-in-ResidenceAfter SuperMac I had been approached by one of our venture investors to be an entrepreneur in residence (EIR), a Silicon Valley phrase which says one thing but means another.

To an entrepreneur, being asked to join a venture firm with an Entrepreneur-in-Residence title means you have been tapped on the shoulder by the VC gods. It means you get to sit at a venture capital firm (some even pay you for the privilege) and stay until you have come up with an idea for your next company or have joined a company you’ve met as they passed through the VC’s offices. Depending on the size of the venture firm they may have one to three EIR’s who stay an average of a year or so. It really means that the VC’s would like to own a piece of you.

To a VC it’s a cheap investment, and if they somehow don’t bind you to their firm, someone else will. In reality an EIR is a set of wonderful golden handcuffs. Of course no VC firm will come right out and say, “If you’re an EIR for us you can’t do your next deal with any other firm.” Hmm… You’ve taken their money, eaten their food, sat in their meetings and you are going to take money from someone else? They have your soul. It sounded like a great deal. I had no idea what I wanted to do next, and would get paid to think about it? How could it go wrong? Little did I know.

Video GamesAt SuperMac, Peter Barrett was the witty and creative 24-year old Australian engineer who had designed several of our most successful products, culminating with the software for the Video Spigot. Now he wanted to go off start his own company. I offered to introduce him to the firm whose Entrepreneur-in-Residence offer I had just accepted. I asked Peter what kind of company he had in mind and was surprised and dismayed by the answer, “I want to make video games.” I remember thinking, “What a disappointment one of the smartest engineers I know and he is going to waste his time making games.” I didn’t give his video game idea another thought. I set up the meeting for him, and at the request of the VC who was going to see him, agreed to sit in when they met.

It was a Friday and we showed up at the VC offices on Sand Hill road. Peter had no slides, and I had absolutely no idea what he was about to say, all I knew is that he wanted to talk about something I was utterly uninterested in – video games.

Henry the Vth
To this day, the VC and I still believe either Peter made what was the single most compelling speech we have ever heard or he had slipped something funny into our water. As Peter began to speak extemporaneously our mouths slowly fell open as he described the video game market, its size, its demographics, the state of the technology, and the state of games. He took us through a day (and a night) of a hardcore gamer and told us about the new class of CD-ROM based game machines about to hit the market.

Peter described the first company in which “Hollywood meets Silicon Valley” and we were enthralled. When he elaborated how CD-ROMs were going to change both the nature of gaming and the economics of the content business, we were certain he had a brilliant idea and by the end of the meeting convinced that this was a company would make a ton of money.

By the end of the meeting the seasoned venture capitalist and I had signed up.

While this all might sound farcical now, a little historical context is in order. The CDROM content business in the early 1990’s was one of the many of the long line of venture capital fads. If you were a “with it” VC you needed to have a “Content” or “Multimedia” company in your portfolio to impress your limited partners – educational software companies, game companies, or anything that could be described as content and/or Multimedia.

There Ought to be a Law
Nowadays there are laws that allow you to back out of a time-share condo contract, or used car purchase after seven days because even the government believes there are times when grown adults lose their minds and stand up and yell “Yes I believe, sign me up!” There are still no laws like that in the venture capital business.

A month later, after raising $4 million dollars (we literally had VC’s fighting over who else would fund us), Peter and I started our video game company, Rocket Science Games.

In reality I had been hired as CEO and the adult supervision and administrative overseer of one of the most creative talents in the valley. And I would get to use my marketing skills at generating an industry-wide reality distortion field to make this company look like the second coming.

I was going to find out why this wasn’t a good idea.

Lessons learned

Your level of due diligence should be commensurate with your position in the company and proportional to the reality distortion field of the presenter

11 Responses

Like so many of your posts, this is fascinating. Thanks for sharing the lessons you’ve learned, especially the ones where the cost is measured in years.

I’ve heard say that people who are used to selling are especially prone to being sold. You mention above being on both sides of a reality distortion field. Do you think your skills made you any more (or any less) prone to believing?

Reality distortion field isn’t the basic technique covered in startups 101?
I just assumed the distortion field must be propagated until it meets reality with widespread adoption. If entrepreneurs can’t imagine and convince us that we can achieve the impossible, who will?

Failed concepts require the courage to recognize the need for business redirection. I’m sold on people, not their favorite idea of the moment. If long term investors fall prey to UBER pitches, at the very least their investing in a master salesmen- leverage that brilliance in another tractable venture.
Ps: my limited perspective comes with self recognition of a lack of hands on experience
always enjoy it when I stop in to read here Steve

Aamir,
The game business is different from the tech business in some obvious and non obvious ways.
– You’re in a “hits-based” entertainment business like movies or music rather than a product business like traditional high-tech.
– You can be an Independent studio or do “work for hire” (either a revenue share or buy-out model)
– If you’re an independent studio you have a set of choices for distribution channel and marketing models.
– etc.
We understood none of this.

Lots of ideas sound exciting because people are clueless. As a VC you have to park your money somewhere, so many awful deals get done. If you are entrepreneur with a solid business that actually makes money you would know that VC has the highest cost of capital imaginable and would find better options.

Of course there have been many VC-backed successes because when new markets rise someone is going to win and many companies take the money along the way. But I wonder if the success is due to or in spite of VCs. Of course, they could be useful in creating liquidity events, but absent bubbly environment and disrupting marketplace what is the point?

[…] Peter described the first company in which “Hollywood meets Silicon Valley” and we were enthralled. When he elaborated how CD-ROMs were going to change both the nature of gaming and the economics of the content business, we were certain he had a brilliant idea and by the end of the meeting convinced that this was a company would make a ton of money. (read more of part one) […]